I find it interesting that many advisors aren’t exactly thrilled with their portfolio management system; it’s fairly common to find many considering a switch. The ongoing release of new features and enhancements offered by providers encourages advisors to evaluate whether their aging system is right for their firm, or if the latest and greatest product really could improve their productivity and profitability. The challenge for advisors is in understanding how to properly evaluate a possible switch.
Given the fact that an investment advisor’s product is usually financial planning and investment management, you can easily argue that the investment portfolio management system is one—if not the most—important technology in an advisor’s office. The system is critical to the advisor’s back office, of course, but it is also one of the few products that actually “touch” clients.
In some cases, the reports generated from the system might be the only items clients review each quarter. Therefore, when considering changing PM systems, it is critical to think about all aspects of its use and implementation. Identifying the benefits of making the change is sometimes the easy part. Ensuring important items aren’t overlooked is consistently the more difficult challenge. Even if the advisor has no desire or need to switch portfolio management systems, this exercise will help reaffirm that the current system is meeting both current and future needs.
When evaluating PM systems, the first thing most advisors review is the performance reports produced by the software. This makes sense given the important role performance reporting fulfills in communicating investment returns to clients. The challenge with evaluating a new system’s performance reports is not only understanding your needs today, but also taking into consideration your future needs as well. In fact, it has been my experience that one of the primary drivers for an advisor switch in systems is they want improved and ultimately more flexible performance reports. One key element is whether the program’s manufacturer is consistently improving its performance reporting capabilities. Your reporting needs will likely change over time. You will probably add new asset types to your investment mix over changing market cycles. For example, if you primarily use mutual funds today, how might your reporting needs change if you begin to use ETFs or fixed income securities? Also the type of clients you serve can directly impact reporting needs. Foundations and non-profit organizations, for example, tend to require very different performance reports versus a traditional private client. Overall, selecting a system that can accommodate reporting needs as you grow is critical to fostering a lasting relationship with clients, and the system provider needs to be in tune with the ways your business evolves.